Question: 1. A call option on stock XYZ has a delta of 0.5. A market maker creates a delta hedging position against a 100 short call position. What is the net investment (the total dollar cost) for this delta hedging position? Be sure to include the proceeds from the short call position. Assume the call options are priced at $5 and the stock price is $86.5.
Make sure you give your answer as a cost, e.g. if you "invest" $50, your answer should be +50. If you receive "$50", your answer should be -50.
2. Now, assume that a call option on stock XYZ had a delta of 0.8. A market maker created a delta hedging position against a 100 short call position. The call option are priced at $5 and the stock price is $80. After one day the call price is now $8 and the stock price is $82.
What is the overnight mark to market profit? Assume a zero interest rate. use a - to indicate negative profits.